August 2005

COMPANY TYPES
UNISON members are increasingly employed by companies, either in the community and voluntary sector or in the private sector. The first step in knowing your employer is to understand what kind of company it is, how it is run, and what motivates it. One of the main differences in types of company is whether it is for-profit or not-for-profit. Some employers of UNISON members have been set up to seek a profit, while others have been formed primarily to provide a service to a particular section of the community. This difference in primary purpose and motivation does not imply attributes of 'good employer' or 'bad employer', but it does help us to view the company as part of a wider group. For example, a set of companies that are not-for-profit can be compared as employers and as service providers with others of the same type, or contrasted with those in the profit-making sector. Also, when a company is just being formed, an understanding of some of the terminology and rules used in company formation helps us to develop an informed opinion on the various options. There is a large body of legislation in the UK covering the formation and activities of companies, with variations in England and Wales, Scotland and Northern Ireland. Companies that are registered as charities are similarly governed by strict codes of practice regarding their activities and accounting procedures. The notes that follow are not comprehensive and should not be used as legal references. They are merely to provide general guidance on different company types and on some of the terminology encountered when setting up a company or when trying to find out more about one. A glossary and sources of information are given at the end. When setting up a company or when in need of advice it is best to consult an expert. Some solicitors specialise in company law, others specialise in voluntary organisations or charities. UNISON branches and officers can obtain information on specific companies from the Bargaining Support Group on 020 551 1155 or bsg@unison.co.uk.

MAIN COMPANY TYPES

There are five main types of registered company: Private company limited by shares Private company limited by guarantee Private unlimited company Public limited company Limited Liability Partnership Industrial and Provident Societies

The Companies Act generally allows one or more persons to form a company. However, a public company or an unlimited company must have at least two subscribers. In law, 'person' includes individuals and companies. Some employers are Partnerships or Sole Traders but as these are not registered as companies they are not covered in this factsheet.

Bargaining Support Group e-mail: bsg@unison.co.uk

August 2005

Company Formation
All companies are formed in much the same way. Essential documents that have to be filed with Companies House on forming a company are: A memorandum of association - sets out the details of the company; signed by the founding members; containing (where applicable) the company name, the address of the registered office, the objects of the company, a statement of limited liability, the amount of the guarantee, and the amount of authorised share capital, and its divisions. If it is a public company, this fact is stated. Articles of association (with some exceptions) - governs the running of a company, setting out the voting rights of shareholders, conduct of shareholders' and Directors' meetings, powers of the management, and so on. The articles may be altered by a special resolution of the members in a general meeting. Community Interest Companies are required to also have in their formation the following documents: a community interest statement an excluded company declaration These documents must be in a form approved by the CICs Regulator. Standard ready-made companies can be bought from a specialist agent, who may also act as Director and/or Company Secretary until officers are appointed.

Company Officers
Every company must have formally appointed company officers at all times. A private company must have at least: one Director one Secretary - formal qualifications are not required

A company's sole Director cannot also be the Company Secretary. A public limited company must have at least: two Directors one Secretary - formally qualified

A limited liability partnership has partners rather than officers. The responsibilities of company officers, procedures for their appointment and resignation etc, are set out in guidance notes supplied by Companies House (covering England and Wales, and Scotland) or Registry of Companies, Credit Unions and Industrial and Provident Societies (in Northern Ireland). These cover limitations on who is allowed to be a company Director, which involve certain conditions regarding bankruptcy, legal disqualifications, nationality and age.

Company Names
There are some restrictions on the choice of company name that are designed mainly to avoid confusion and offence.

Transparency
In all companies, the roles of the Directors and the officers have to be strictly defined in the articles of association with proper provision for scrutiny. Without full transparency there is the potential for conflict of interest and even corruption. For example, if a Director Bargaining Support Group e-mail: bsg@unison.co.uk

August 2005
is also a contractor to the company, there must be rules for clearly monitoring and reporting on the relationship.

Private limited companies (Ltd)

Private companies can be limited by shares or guarantee.

Limited by Shares
This is the most common type of company, and the type normally used for a company engaged in a 'for-profit' business. If the shares are fully paid, the members' liability is limited to the money they have paid. Therefore, the maximum risk a shareholder runs is to lose all the money they have paid for their shares, and no further claim can be made on them for liabilities incurred by the company. If the shares are partly paid, shareholders can be called upon to subscribe some or all of the unpaid part, but no more than that.

Limited by Guarantee
This is the type normally used by not-for-profit organisations, such as in the community and voluntary sector. Members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. In the case of not-for-profit companies this is usually a nominal amount, such as 1. These rules are written into the Memorandum of Association. Because these companies have no shares, any surplus (profit) that is generated cannot be distributed to its members. The surplus may be saved or re-invested in the company's activities. There are many and various ways of siphoning off surplus funds to members in a corrupt organisation. This must be guarded against by establishing sound scrutiny rules and mechanisms in the Articles of Association.

Single Member Companies

A single member company is a private company, limited either by shares or by guarantee, which is incorporated with one member, or whose membership is reduced to one person. The company must still have at least one Director and a Secretary who cannot also be the sole Director. There are specific rules to govern such a company. A company that would like to avoid finding itself reduced to just one member would have precautions written into its articles of association so that, following a normal course of events, it would be unlikely to find itself in this situation.

Private unlimited companies

This is a company whose shareholders do not benefit from limited liability. On the other hand, they do not have to file accounts with the Registrar of Companies. Each member can individually be held entirely responsible for all debts.

Public limited companies (PLC)

A public limited company is a company that is registered as such and complies with the following, among other, conditions: It must have an authorised share capital of at least 50,000. Before it can start business, it must have allotted shares to the value of at least 50,000. A quarter of them, 12,500, must be paid up. Each allotted share must be paid up to at least one quarter of its nominal value together with the whole of any premium. Bargaining Support Group e-mail: bsg@unison.co.uk

August 2005
It must state that it is a public limited company both in its memorandum and in its name. The memorandum must contain a clause stating that it is a public limited company and the name must end with 'Public Limited Company' or 'PLC' in England or, if it is a Welsh company, the Welsh equivalents 'Cwmni Cyfyngedig Cyhoeddus' or 'CCC'). The rules governing PLCs are generally more restrictive than for private companies. However, a PLC has much greater access to new funds through the capital markets and by offering its shares for sale to the public through the stock exchange. It can also advertise and sell its shares to the public, which a private company may not do. PLCs generally start out as private limited companies and re-register at a later date.

Limited liability Partnerships

A Limited Liability Partenrship operates much like private companies. The main difference is that a limited liability partnership has the organisational flexibility of a partnership and is taxed as a partnership. In other respects it is very similar to a company. A limited liability partnership shares many of the features of a normal partnership but it offers reduced personal responsibility for business debts, in much the same way as a private company. Unlike a traditional partnership, members of the LLP are able to limit their personal liability if something goes wrong with the business, in much the same way as shareholders in a company have always been able to do. Generally, an individual or a legal body such as a company may be a member in a limited liability partnership. A limited liability partnership may not normally consist of more than 20 persons. However, there are exceptions to this rule, including professional practices of solicitors and accountants, stock exchanges, surveyors or insurance brokers.

Industrial and Provident Societies

Many not-for-profit community and voluntary sector organisations, including housing associations, register under the Industrial and Provident Societies Act. For a company to be registered as an Industrial and Provident Society (IPS), it must meet one of two requirements: it is a bona fide co-operative - the business activities of the society must be primarily for the benefit of the members on a mutual basis; and control of the society lies with all members; or the business of the society is conducted for the benefit of the community; and those activities will benefit persons other than the members, although the members might themselves benefit; and, there are "special reasons" why the society should be registered under this act rather than under the Companies Act.

Examples of the special reason are: a society may wish to operate on the basis of 'one member, one vote', or a society may be part of a group structure of societies sharing common accounting and/or IT systems.

An IPS may be a subsidiary of another corporate body but in such a case the basis of 'one member, one vote' would not be sufficient in itself. An IPS may also buy and operate a private for-profit company.

Associations
An unincorporated association is a simple legal structure commonly used by small voluntary organisations. It provides a democratic structure with procedures more flexible than a company limited by guarantee or IPS. It is only suitable for a small group, which Bargaining Support Group e-mail: bsg@unison.co.uk

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has a limited or specific purpose, operates on a small budget, does not own property or employ staff, or enter into lease agreements for any equipment etc.

THE COMPANY REGISTRAR

The Company Registrar keeps copies of documents related to the formation, legal processes and finances of a company and makes them available for public inspection. All company formation documents are subject to certain checks including of prospective officers against a register of disqualified Directors. There are separate registrars for England and Wales, Scotland and Northern Ireland. Their details are given at the end of this fact sheet.

Converting to a Public Company

Both a private company limited by shares and an unlimited company with a share capital may re-register as a PLC, but a company without share capital cannot do so.

Converting to a Private Company

A public company limited by shares or by guarantee may re-register as a private company limited by shares or by guarantee by passing a special resolution to do so. However, if enough members object they may apply to the court to cancel the resolution within 28 days of its being passed. A Court may also order a public company to re-register as private on approving a 'minute of reduction' of share capital which results in the issued share capital falling below the statutory minimum.

COMMUNITY AND VOLUNTARY SECTOR ORGANISATIONS

Charities and not-for profit organisations
Community and voluntary sector organisations are rarely companies limited by shares. They are most often formed as private companies limited by guarantee or Industrial and Provident Societies. Sometimes private companies limited by guarantee are also registered as a charity. Industrial and Provident Societies are charities by definition. General advice on running a voluntary organisation (a charity or not) can be obtained from: England and Wales National Council for Voluntary Organisations (NCVO) Regents Wharf All Saints Street London N1 tel: 020 7713 6161 email: ncvo@ncvo-vol.org.uk www.ncvo-vol.org.uk/ Scotland Scottish Council for Voluntary Organisations (SCVO) The Mansfield, Traquair Centre, 15 Mansfield Place, Edinburgh EH3 6BB tel: 0131 556 3882 fax: 0131 556 0279 email: enquiries@scvo.org.uk www.scvo.org.uk/ Northern Ireland Northern Ireland Council for Voluntary Action (NICVA) 61 Duncairn Gardens Belfast BT15 2GB tel: 028 9087 7777 fax: 028 9087 7799 email: nicva@nicva.org www.nicva.org/

Bargaining Support Group e-mail: bsg@unison.co.uk

August 2005

Community Interest Companies

The Community Interest Company (CIC) is a new type of company (effective 5 July 2005) specifically for social enterprises that want to use their profits and assets for the public good. CICs are formed as a private limited company, working for the benefit of the community without either the profit motive or charitable status. Unlike conventional companies, there is no potential for asset stripping and, unlike most charities, directors may be paid as long as the remuneration is not excessive. CICs will have to report to an independent regulator on how they are delivering for the community and how they are involving their stakeholders in their activities. For further information on CICs please go to the regulator's web site: www.cicregulator.gov.uk .

Industrial and Provident Societies

The Registry of Friendly Societies in England and Wales transferred to the Financial Services Authority in November 2001. For more information, and for ordering copies of accounts, contact:: England and Wales Financial Services Authority. Public Records Section Helpdesk 020 7676 4909 Email: public.records@fsa.gov.uk. Accounts are available at a fee depending on the length of the document. Scotland Registry of Friendly Societies 58 Frederick Street Edinburgh EH2 1NB tel: 0131 226 3224 Northern Ireland The Registrar IDB House 64 Chichester Street Belfast BTI 4JX tel: 01232 234488 fax: 01232 544888

Charities
Charities are also companies but to claim tax benefits they must also be registered separately as a charity with the Charities Commission. This puts restrictions on the kind of activities they can undertake. For example, charities cannot trade as a business, although they can set up a separate trading company, which donates its profit to the charity. As IPSs are charities by definition, they do not have to register as a charity with a separate body.

Charity Commission for England & Wales

The Commission maintain a computer database of all registered charities, which can be used by the public at any of the Commission's three offices. It contains key details on charities such as the contact address and details of charities' activities and finances. Copies of extracts from the Register, constitutions and charities' accounts can be obtained for a fee. Harmsworth House 13-15 Bouverie Street London EC4Y 8DP tel: 0870 333 0123 fax: 020 7674 2300 20 Kings Parade Queens Dock Liverpool L3 4DQ tel: 0870 333 0123 fax: 0151 703 1555 Woodfield House Tangier, Taunton Somerset TA1 4BL tel: 0870 333 0123 fax: 01823 345 003 8th Floor, Clarence House, Clarence Place, Newport, South Wales NP19 7AA

Bargaining Support Group e-mail: bsg@unison.co.uk

August 2005

Charities in Scotland and Northern Ireland

Charities are recognised in Scotland by: Office of the Scottish Charity Regulator (OSCR) 1st Floor, Argyll House Marketgait Dundee DD1 1QP tel: 01382 220446 Northern Ireland enquiries should be sent to: Charities Branch Voluntary & Community Unit Department for Social Development rd 3 Floor, Lighthouse Building 1 Cromac Place, Gasworks Business Park Ormeau Road Belfast BT7 2JB tel: (028) 90 829 414

info@oscr.org.uk

vcu@dsdni.gov.uk

FURTHER INFORMATION ON COMPANY RULES

A comprehensive set of guidance notes on company formation and rules governing the running of a company is available from the appropriate Companies Registrar, as below. England and Wales, and Scotland Companies House Crown Way Cardiff CF14 3UZ tel: 0870 3333636 fax: 029 20380900 Monday to Friday 9.00am - 5.00pm (office hours) Call Centre 0870 3333636 www.companies-house.gov.uk Northern Ireland Companies Registry IDB House 64 Chichester Street BELFAST BTI 4JX tel: 0845 604 88 88 www.detini.gov.uk/

Other information on companies can be found in reference books in the business or accounting sections of your library or bookshop but be aware that the law may change before these books have time to catch up. It is always best to consult an expert solicitor. Copies of company documents may also be obtained from the registrar for a fee. UNISON branches and officers are able to request a limited number of documents for companies registered in England and Wales or Scotland by contacting the Bargaining Support Group on bsg@unison.co.uk, tel: 020 7551 1743/5, fax: 020 7551 1766 stating your name, branch, postal address and why you need the information. This service is available because UNISON has a standing arrangement with Companies House (covering companies registered in England, Wales and Scotland). Unfortunately, the same service is not possible for companies registered in Northern Ireland or as Industrial and Provident Societies. This factsheet is intended as general guidance. It should not be used as a final source. If you need to investigate a company further please consult the publications of the official registrars. Information on the activities of specific companies is available to UNISON branches and officers from the Bargaining Support Group on 020 7551 1155 or bsg@unison.co.uk.

Bargaining Support Group e-mail: bsg@unison.co.uk

August 2005

GLOSSARY
Board of Directors Company Secretary The collective body of Directors. An officer of the company but not a Director, although the same person may hold both positions. The appointment is usually made by the Directors. The role is mainly administrative, but may include some managerial and legal duties. The Secretary of a PLC must have certain qualifications. A person appointed to carry out the management of a company. The Board of Directors may be split into executive and nonexecutive functions. Directors may or may not be shareholders (where applicable) or subscribers. Directors may be representatives of a member, where the member is a company or an organisation, such as a local authority. The rules for appointing and retiring directors are written in the Articles of Association. A 'working director', who has day-to-day management responsibility. An amount that a company or an individual is liable to pay. A member of a company is a shareholder (where applicable) of a company. In a company limited by guarantee, a member is a person who registers their guarantee. A member of the board of directors, generally involved in planning and policy making but not in day-to-day running of the company. In company rules, a person can be an individual or a company (or an organisation such as a local authority). Therefore, a Director or other officer can also be a representative of a company or other organisation. A share in a company is a share in the ownership of that company. It entitles the owner to a share of the profits, as defined in the memorandum of association. There are different types of shares, which may or may not attract voting rights, premiums and other preferred treatment. A shareholder is an individual or company who possesses shares in the company. A person who signs the memorandum of association of a new company who joins with other members in the company in paying for a specified quantity of shares in the company or registering their guarantee, signing the articles of association, and appointing the first directors of the company.

Director

Executive Director Liability Member

Non-executive Director Person

Share

Shareholder Subscriber

Bargaining Support Group e-mail: bsg@unison.co.uk